The Figure Given Below Depicts the Foreign Exchange Market for British

question 91

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S. dollars.Figure 22.2

-Suppose a Canadian investor buys a one-year U.S. government bond that pays 7 percent interest. If the U.S. dollar appreciates 4 percent against the Canadian dollar during the year, what must be the yield on a comparable Canadian government bond for interest rate parity to hold?

• A)3 percent
• B)4 percent
• C)7 percent
• D)10 percent
• E)11 percent

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